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The EU VAT directive on vouchers was necessary as EU Member States (MSs) applied different rules with respect to vouchers. In cross-border transactions, the result of these deviant rules were that no, or double VAT was charged. It was therefore necessary to have uniform rules on the VAT treatment of vouchers. The new rules, that are effective from 2019, aim to ensure uniform treatment of vouchers, avoid inconsistencies, double taxation or non-taxation of those instruments and mismatches in the VAT treatment of vouchers supplied between MSs.
However, these new rules still don’t always provide the necessary clarity for parties involved. MSs may have different interpretations on the new voucher rules. Various new promotional schemes used by businesses are one of the reasons of unclarity of the rules around vouchers.
A voucher is an instrument that entails an obligation to accept it as consideration, or part consideration, for a supply of goods or services. It allows (together with related documentation) to specify the goods or services to be supplied or the identities of their potential suppliers.
EU rules distinguish between two types of vouchers, namely a ‘single-purpose’ voucher (SPV) and a ‘multi-purpose’ voucher (MPV). A SPV is a voucher for which the VAT treatment can be determined at the time of issue. A MPV is a voucher other than a SPV.
The VAT treatment of a voucher depends on its classification (a SPV or a MPV). The type of voucher determines whether the voucher is subject to VAT upon sale (or resale), or later upon redemption. Secondly, a country where the voucher is sold may be different from where the voucher is later redeemed for goods or services. This may impact the country where VAT may need to be accounted for (a so-called ‘place of supply’). Thirdly, the amount of VAT payable can depend on this qualification.
A SPV is taxable upon each (re)sale – and not taxable upon redemption. A MPV is not taxable upon issuance and (re)sale, however, is taxable upon redemption.
The place of supply or applicable VAT rate of the goods or services to which a MPV relates and which will be chosen by the end consumer is not known at the time of the issue of a voucher of that type. The VAT payable on those goods or services cannot be determined with certainty at that time. It is therefore only when a MPV is redeemed for the goods or services that the VAT is known and can be duly applied.
This means that if a voucher clarifies as a MPV, VAT is charged on the actual handing over of the goods or the actual provision of the services in exchange for a MPV. The VAT is not charged on transfers of that voucher that take place before such a voucher is redeemed by the end consumer.
During 2019, a German business M-GbR sold gift cards issued by Sony for the latter’s PlayStation Store (PSN Cards) for which an end consumer could purchase digital content. Cards could only be redeemed by user accounts registered to a German address according to Sony’s specifications. M-GbR took the view that gift cards were MPVs, the transfer of which was not subject to VAT. It was argued that at the time gift cards were transferred, the domicile or habitual residence of the end customer was not known with certainty.
Although the cards were meant only for German customers, a large number of customers residing outside Germany also purchased those vouchers from M-GbR by providing false information about their location.
Following an audit, the German tax authorities took the view that the gift cards constituted SPVs, since they could be used only by customers domiciled in Germany, so that the place of supply, was in Germany. The fact that some customers may have been able to circumvent the conditions of use of those cards, by providing deliberately misleading data or by concealing their Internet Protocol (IP) address, was not a determining factor for the purposes of classifying those cards for tax purposes as SPVs.
The German Federal Fiscal Court (BFH) raised doubts as to how distribution chains of vouchers affect the criterion of the ‘VAT treatment can be determined at the time of issue’ for classifying a voucher as a SPV and referred the case to the ECJ.
The ECJ explains that if a voucher is the subject of successive transfers between intermediaries established in various countries before it is sold to a final customer, it could still be classified as a SPV.
The ECJ clarified that the classification of a voucher as a SPV is based on the fulfilment of two cumulative conditions. Namely, the following must be known at the time of issue of the voucher:
The ECJ explained that where there are various intermediaries involved in the supply chain of a voucher, then to classify a voucher as a SPV, above two conditions should be met for the final use of the voucher (i.e., when the voucher is redeemed for the goods or services). In other words, it should be clear how the VAT applies to a supply of goods or services when the goods or services are actually handed over or provided to the holder of the voucher (so upon redemption of the voucher).
The place of supply of the (cross-border) transfers before the sale to a final customer is irrelevant for classification of the voucher. However, if the voucher is indeed classified as a SPV, then those sales between intermediaries are subject to the VAT.
In regard of the case at hand, the place of supply of the electronic services to which the voucher relates must be known at the time of issue of the voucher. The ECJ found that at the time of issue of such vouchers, the place where the digital content was supplied to the end consumer in exchange for the gift cards sold by M-GbR was in Germany, even if those cards were made use by the customers of other countries, in order to obtain price advantages.
The ECJ argued that the appropriate classification of a transaction for VAT purposes cannot depend on any abusive practices.
The ECJ decision explains that when the vouchers are used in other countries than where they are meant to be used (e.g., by providing deliberately misleading data or by concealing their IP address) to obtain a price advantage, that this does not alter the classification and VAT treatment of the vouchers. It also clarifies that a voucher could still be classified as a SPV if it is the subject of successive transfers between intermediaries established in various countries before it is sold to a final customer.
The VAT treatment of vouchers remains a complicated topic and we advise you to consult your VAT advisor to ensure that the VAT treatment of such instruments and your promotional schemes is correct.
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